While we were still coming to terms with the increased prices of cars and onions, we got another blow: the hike in petrol prices. And the timing could not have been worse than this for the auto industry which already fears a sharp decrease in car sales due to rising interest rates and pinching inflation. And, the final blow would come when the Union Budget 2011 would be read two months later. Chances are that the government would increase the excise duty on small cars.
Indian car sales, which were during pretty well in 2010 with more than 30% growth, might be in for some serious trouble. Industry analysts and officials are of the view that the negatives are fast gaining strength and look set to dampen sentiments. “We are concerned. The sentiment is getting affected and the three negative factors combined will be detrimental for growth,” said Mayank Pareek, managing executive officer (sales and marketing) at Maruti Suzuki.
While rising fuel bills have affected the running cost of the vehicle, the inflation has led to bad sentiments in the market. “We will have to wait and watch to understand the real impact from these factors which will be really felt over the next few months,” he said. The rising costs of petrol (prices have gone up by about Rs 11 since June last year) deter people from using their cars on a regular basis and eventually from buying new cars.
Sandeep Singh, deputy MD at Toyota Kirloskar Motors, agreed with Pareek and said that the situation could get very serious in the coming months. “We are concerned about these issues. Rising petrol prices, higher input costs and repeated increases in interest rates would dampen the growth prospects,” Singh said, adding that the industry would now look at directions from the Union Budget.
Another thing to worry is the increasing interest rates on car loans. After holding steady for about 8-9 months, the interest rates have started to become tighter and have increased by about 3 percentage points in the last four months. And the government’s futile attempts to restrain inflation are going to result in the interest rates going further higher.
The cumulative effect of these negative factors means that you need not only a lot of money to purchase a vehicle but also to maintain it.